Northern CPAR: Auditing Theory – First Preboard

NORTHERN CPA REVIEW

Rm. 412 Pelizloy Centrum, Lower Session Road, Baguio City
Contact Numbers: 09294891758; 09272128204
E-mail: ncpar@yahoo.com

1. Which of the following is the least function of the Board of Accountancy?

a. To conduct an oversight into the quality of audits of financial
statements through review of firms’ system of quality control
b. To supervise the registration, licensure and practice of accountancy
in the Philippines
c. To help in the supervision of operations of the accredited
professional organization
d. To investigate violations of the accountancy law

2. Statement 1: In performing compliance audits, a CPA issues a report on

the degree of compliance with the criteria used for the engagement (e.g.
laws, rules or regulations set by the auditor).
Statement 2: Independent auditors are expected by management to be
experts who actively participate in management decision-making.
Statement 3: A typical objective of an operational audit is for the
auditor to determine whether the financial statements fairly presents the
entity’s financial position, results of operations, and cash flows.
a. Only one statement is correct c. All statements are correct
b. Only two statements are correct d. All statements are incorrect

3. Which of the following is not one on the qualifications of a member of

the Board of Accountancy?
a. Natural born citizen and a resident of the Philippines
b. Good moral character and a resident of the Philippines
c. Duly registered certified public accountant and in the practice in any
sector of accountancy profession for ten (10) years
d. Not directly connected with any school granting degrees that qualify
graduates for the CPA examination, or with any CPA review school.

4. “In our opinion, internal control is effective, in all material

respects, based on suitable criteria.” – this statement is an example of
a. Limited assurance engagement c. Absolute assurance engagement
b. Reasonable assurance engagement d. Non-assurance engagement

5. Statement 1: The assumption underlying an audit of financial statements

is that they will be used by different groups for similar purposes.
Statement 2: Information risk refers to the risk that the auditor may
express an unqualified opinion on the financial statements when in fact
the financial statements are materially misstated.
Statement 3: The biases and motives of the information provider may be a
cause of information risk.
a. Only one statement is correct c. All statements are correct
b. Only two statements are correct d. All statements are incorrect

6. As used in auditing, which of the following statements best describes

"assertions"?
a. Assertions are the representations of management as to the reliability
of the information system.
b. Assertions are the auditor's findings to be communicated in the audit
report.
c. Assertions are the representations of management as to the fairness of
the financial statements.
d. Assertions are found only in the footnotes to the financial
statements.

7. The single feature that most clearly distinguishes auditing, attestation,

and assurance is

1
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
a. Type of service c. CPA’s approach to the service

b. Scope of services d. Training required to perform

the service

8. A CPA firm studies its personnel advancement experience to ascertain

whether individuals meeting the required criteria are assigned increased
degrees of responsibility. This is an evidence of the firm’s adherence
to prescribed standards of
a. Supervision and review c. Professional development
b. Continuing professional education d. Quality control

9. Theoretically, it is possible to provide an infinite range of assurance

from a very low level of assurance to an absolute level of assurance. In
practice, the professional accountant cannot provide absolute assurance
because of the following, except
a. The use of judgment in gathering evidence and drawing conclusions
based on that evidence.
b. The inherent limitations of accounting and internal control systems.
c. The lack of expertise of the CPA in performing the engagement process.
d. The use of selective testing.

10. Which of the following is not one of the characteristics of a

profession?
a. Mastery of a particular intellectual skill acquired by training and
education
b. A responsibility to protect exclusively the interest of a client or
employer
c. Adherence by its member to a common code of conduct
d. Acceptance of a duty to society as a whole

11. Independence in auditing means

a. Not having any financial or economic relationship with the client
b. Being an advocate for the client
c. Taking an unbiased viewpoint
d. Not having a loan to or from an assurance client

12. Which of the following statements is not correct about independence

requirements?
a. For assurance engagements provided to audit client, the members of the
assurance team, the firm and network firms are required to be
independent of the client
b. For assurance engagements provided to non-audit clients, where the
distribution of the reports is limited only to specified users, the
members of the assurance team and the firm are required to be
independent of the client.
c. For assurance engagements provided to non-audit clients, the members
of the assurance team and the firm are required to be independent of
the client.
d. For non-assurance engagements provided to clients, independence is not
required since no assurance will be provided.

13. A CPA shall not disclose confidential information obtained during an

audit engagement in which one of the following situations?
a. When security of the state so requires
b. With the consent of the client
c. In defense of himself when sued by his client
d. To a successor auditor notwithstanding client’s permission

14. The rules of professional conduct states that a CPA shall not disclose
any confidential information obtained in the course of a professional
engagement except with the consent of his client. In which of the
following situations given below would disclosure by a CPA be in
violation of the rules of professional conduct?

2
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
a. Disclosing confidential information in order to properly discharge the
CPAs responsibilities in accordance with his profession’s standards.
b. Disclosing information in compliance with a subpoena issued by a
court.
c. Disclosing confidential information to another accountant with similar
client under the same industry.
d. Disclosing confidential information in an investigation conducted by
the PRC thru the BOA.
15. Which of the following statements would best explain why reports on
agreed-upon procedures are restricted to the parties that have agreed to
the procedures to be performed?
a. Independence is required when such engagements are performed.
b. The identity of fraudsters must be protected from further damage by
exposure to the public.
c. Other parties who are unaware of the reasons for the procedures may
misinterpret the results.
d. Users of audited financial statements must form their own conclusions.

16. The financial reporting framework adopted by management in preparing

the financial statements that the auditor has determined is applicable in
view of the nature of the entity and the objective of the financial
statements, or that is required by law or regulation.
a. Philippine Standards on Auditing c. Qualitative characteristics
b. Terms of engagement d. Applicable financial
reporting framework

17. While performing tax services for new client, the CPA discovered a
material error in a previously filed tax return prepared by another CPA.
In such a case, he should
a. Prepare an affidavit with respect to the error
b. Recommend to the client to file a corrected return regardless of
whether the error resulted in an overstatement or understatement of
tax
c. Advise compensating for the prior year’s error in the current year’s
tax return where such action will mitigate the client’s cost and
inconvenience
d. Inform the BIR of the error discovered and wait for the actions to be
made by the said agency

18. The risk that a misstatement that could occur in an assertion and that
could be material, either individually or when aggregated with other
misstatements, will not be prevented, or detected and corrected, on a
timely basis by the entity
a. Audit risk c. Control risk
b. Inherent risk d. Detection risk

19. One of the major differences between auditor and other professionals
is that professionals
a. Do not have to pass rigorous examination to be admitted in the
profession
b. Are not expected to act in the best interest of the public
c. Need not be concerned about independence
d. Do not need the confidence of the public

20. Which of the following would most likely create a self-review threat?
a. Financial interest in the client
b. A former partner joins the assurance client
c. Litigation involving professional accountant and a client
d. A former officer of a client is now a member of the assurance team

21. Which of the following statements about CPA’s financial interest in a

client is incorrect?
a. Immaterial direct financial interest impairs the CPA’s independence.
b. Immaterial indirect financial interest impairs the CPA’s independence.
c. Material direct financial interest impairs the CPA’s independence.
3
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
d. Material indirect financial interest impairs the CPA’s independence.

22. According to the Philippine Code of Ethics, independence is

potentially affected by self-interest, self-review, advocacy, familiarity
and intimidation threats. Which of the following best describes
“familiarity threat”?
a. This occurs when a firm or a member of the assurance team could
benefit from financial interest in an assurance client.
b. This occurs when an officer or director of the assurance client was
previously a member of the assurance team.
c. This occurs when any product or judgment of a previous engagement
needs to be re-evaluated in reaching the conclusions on the assurance
engagement.
d. This occurs when a firm, or a member of the assurance team, promotes,
or may be perceived to promote, an assurance client’s position or
opinion to the point that objectivity may, or may be perceived to be,
compromised.

23. Which of the following is an example of a self-review threat that may

affect the independence of the professional accountant?
a. Threat of replacement over a disagreement with the application of an
accounting principle
b. Dealing in, or being a promoter of, share or other securities in an
audit client
c. A member of the assurance team having an immediate family member or
close family member who is a director or officer of the assurance
engagement
d. Preparation of original data used to generate financial statements or
preparation of other records that are the subject matter of the
assurance engagement.

24. As presented in the Code of Ethics for professional accountants, close

business relationships with assurance clients may create
a. Familiarity, self-interest, intimidation and advocacy threats
b. Familiarity, self-interest and intimidation threats
c. Familiarity, self-interest, self-review and intimidation threats
d. Self-interest and self-review threats

25. Using the same senior personnel on an assurance engagement over a long
period of time would most likely create
a. Intimidation threat c. Familiarity threat
b. Advocacy threat d. Self-interest threat

26. Which of the following would least likely be considered a violation of

the independence rules?
a. Receiving a gift from an assurance client
b. Providing tax consultancy services to an audit client
c. Providing underwriting services to an assurance client
d. Providing bookkeeping services to an audit client that is listed in
the stock exchange

27. Which of the following would not impair the professional accountant’s
independence?
a. Serving as an officer of an audit client
b. Actual or threatened litigation between a member of an assurance team
and the assurance client
c. A firm’s partner is an honorary member of an audit client
d. Entering into an assurance engagement under an arrangement whereby no
fees will be charged unless specific finding is attained.

28. Which of the following is not an objective of Philippine Framework for

Assurance Engagements?
a. define and describe the elements and objectives of assurance
engagements
b. identifies engagement to which PSAs, PSREs, PSAEs and PSRS apply
4
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
c. does not itself establish standards or provide procedural requirements
for the performance of assurance engagements
d. it provides a frame for reference for practitioners in public
practice, practitioners neither in public practice nor public sector,
intended users, responsible party and AASC

29. Safeguards within the firm’s own systems and procedures do not
include:
a. Involving another firm to perform or re-perform part of the assurance
engagement
b. Discussing issues with the audit committee or others charged with
governance
c. Policies and procedures to emphasize the assurance client’s commitment
to fair financial reporting
d. Educational, training and experience requirements for entry into the
profession.

30. The existence of an audit committee which acts as an intermediary

between the independent auditor and management can be regarded as a
safeguard
a. Created by the profession c. Created within the client
b. Created within the firm’s systems d. Created within the community

31. Which of the following is not prohibited by the code of professional

ethics for CPAs?
a. Advertising and solicitation of clients
b. Payment of commission to obtain a client
c. Receiving a commission for services performed prior to referral to
another CPA
d. Charging a fee based on the result of the engagement

32. The Code of ethics prohibits a CPA in public practice to

a. Announce the change in office location in a newspaper
b. Develop and maintain website in the internet
c. State in the CPA’s letterhead that the CPA specializes in providing
tax services
d. Include his tax identification number and membership in PICPA in his
stationery

33. Professional accountants press and other media release undertaken to

communicate releases undertaken to commemorate anniversaries in public
practice by informing the public of their achievements or contributions
towards nation building are
a. Considered to be a violation of the rules on advertising
b. Forms of solicitation
c. Not permitted in the Philippines
d. Not considered a violation provided such undertaking is done once
every five years

34. Statement 1: In the context of PSQC 1, the term “personnel” is

narrower in meaning than the term “staff”.
Statement 2: The term “engagement team” does not include any experts
contracted by the firm in connection with a specific engagement.
a. True, true c. False, true
b. True, false d. False, false

35. This is an engagement in which a practitioner is engaged to issue, or

does issue, a written communication that expresses a conclusion about the
reliability of a written assertion that is the responsibility of another
party:
a. Assurance engagement c. Audit engagement
b. Attestation engagement d. Review engagement.
36. The work of each assistant needs to be reviewed by personnel of at
least equal competence. Which of the following is not one of the
objectives of this requirement?
5
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
a. The work performed and the results obtained have been adequately
documented.
b. The objectives of the audit procedures have been achieved.
c. All available evidences have been obtained, evaluated and documented.
d. The conclusion expressed is consistent with the result of the work
performed and support the opinion.

37. Auditing standards differ from auditing procedures in that auditing

standards relate to the
a. measures of performance c. acts to be performed
b. audit principles d. audit judgments

38. Which of the following phrases best describes reliability?

a. Relevant factors that could affect the conclusions in the context of
the engagement circumstances are not omitted
b. Allows suitable criteria to contribute to conclusions that assist
decision-making by the intended users
c. Allows reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when
used in similar circumstances by similarly qualified practitioners
d. Contributes to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations

39. Which of the following is the best criterion for evaluating a staff
auditor’s work performance?
a. Quantity of significant audit findings
b. Fulfillment of requirements set forth in the audit
c. Working papers appearance
d. Ability to get along with clients and other members of the engagement

40. Supervision includes the following, except

a. Tracking the progress of the engagement
b. Considering the capabilities and competence of individual members of
audit personnel
c. Addressing all issues arising during the engagement and modifying
planned approach appropriately
d. Identifying matters for consultation or consideration by more
experienced engagement team members during the engagement

41. In performing an assurance engagements, a professional accountant

typically
a. Supplies litigation support services
b. Issues opinion about representations
c. Assess control risk at a low level
d. Provides management consulting advice

42. The objective of this engagement is a reduction in assurance

engagement risk to an acceptably low level in the circumstances of the
engagement as the basis for a positive form of expression of the
practitioner’s conclusion.
a. Limited assurance engagement c. Absolute assurance engagement
b. Reasonable assurance engagement d. Non-assurance engagement

43. Statement 1: The firm is required to be independent of clients when

performing assurance engagements.
Statement 2: Monitoring compliance with independence requirements stops
once the pre-engagement process has been completed.
c. True, true c. False, true
d. True, false d. False, false

44. The auditor's judgment concerning the overall fairness of the

presentation of financial position, results of operations, and changes in
financial position is applied within the framework of
a. GAAP c. Internal control
b. Philippines Standards on Auditing d. Information systems control
6
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard

45. As the level of materiality is set a lower amount, audit risk and
amount of substantive tests will.
a. Increase and decrease, respectively c. Both increase
b. Decrease and increase, respectively d. Both decrease

46. The major difference between engagement quality control review and
inspection is that:
a. Quality control review is performed by a partner of the firm, while
inspection is performed by the Quality Review Committee.
b. Quality control review is performed after the issuance of the report,
while inspection is performed after the completion of working papers.
c. Quality control review is required for audits of financial statements
of listed entities, while inspection applies to non-listed entities.
d. Quality control review is part of quality controls for engagement
performance, while inspection is part of quality controls for
monitoring.

47. Which of the following provides the highest form of assurance is a(n):
a. Assembly c. Review
b. Compilation d. Examination

48. Audits of financial statements include an expression of a conclusion

about which of the following financial statement characteristics?
a. Governance c. Relevance
b. Reliability d. Timeliness

49. A review of a company's financial statements by a CPA firm:

a. Is significantly less in scope than an audit and results in a report
which provides positive assurance, although not absolute assurance.
b. Is similar in scope to an audit and adds similar credibility to the
statements.
c. Concludes with the issuance of a report expressing the CPA's opinion
as to the fairness of the statements.
d. Is designed to provide only limited or moderate assurance.

50. In performing a financial statement audit, which of the following

would an auditor be least likely to consider?
a. Internal control
b. Fairness of the financial statement amounts
c. Compliance with GAAP
d. Quality of management’s business decisions

51. Internal auditors are most likely to issue a report on which of the
following?
a. Annual financial statement reporting c. Internal control
b. Tax compliance d. Quarterly financial statement
reporting

52. Statement 1: PSAs, PSREs, PSAEs, PSRSs and practice statements are
collectively referred as AASC’s Engagement Standards.
Statement 2: A professional accountant who fails to consider and apply
the guidance included in a relevant Practice Statements need not be
prepared to explain how the basic principles and essential procedures in
the Engagement Standards addressed by the Practice Statement have been
complied with provided, there would be an inclusion of such failure in
the engagement report.
a. True, true c. False, true
b. True, false d. False, false

53. The following are generalizations about the reliability of evidence.

Which is incorrect?
a. Evidence that is generated internally is more reliable when the
related controls are effective.

7
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
b. Evidence obtained indirectly by the practitioner is more reliable than
evidence obtained directly.
c. Evidence is more reliable when it is obtained from sources within the
entity.
d. Evidence is more reliable when it exists in documentary form, whether
paper, electronic, or other media.

54. The following statements relate to CPA examination. Which of the

following statements is correct?
a. To be qualified as having passed the licensure examination for
accountants, a candidate must obtain a general average of at least
75%.
b. Any candidate who fails in two complete CPA board examinations shall
never be permitted to take another set of examination.
c. The Board, subject to the approval of the Commission, may revise or
exclude any of the subjects and their syllabi, and add new ones as the
need arises.
d. A candidate who receives a conditional credit shall take an
examination in the remaining subjects within one year after the
preceding examination.

55. These are used to evaluate or measure the subject matter of an

assurance engagement.
a. Criteria c. Assertions
b. Engagement process d. PSAs

56. Assurance engagement risk is the risk

a. Of expressing an inappropriate conclusion when the subject matter
information is not materially misstated.
b. Through loss from litigation, adverse publicity, or other events
arising in connection with a subject matter reported on.
c. That the practitioner expresses an inappropriate conclusion when the
subject matter information is materially misstated.
d. Of expressing an inappropriate conclusion when the subject matter
information is either materially misstated or not materially
misstated.

57. There are other assurance engagement other than audits and reviews of
historical financial information. Which of the following best describes
risk assessment measurement?
a. An engagement which provides assurance about whether financial and
non-financial information being reported from the entity’s performance
measurement system is reliable.
b. An engagement which involves the evaluation of the quality of health
care, medical services and looks into the health care delivery system.
c. An engagement which identifies a set of risks that affect the client
organization. It involves the study of the link between risks and the
organization’s vision, mission, objectives and strategies and the
development of new and relevant measures.
d. An engagement which involves evaluating whether financial and non-
financial information systems provide reliable information for
operating and financial decisions by an entity’s management.

58. Set the following phases in proper order:

i. Pre-Engagement iii. Evidence-Gathering v. Debriefing
ii. Internal Controls iv. Planning vi. Reporting
a. i, ii, iii, iv, v, vi c. i, iv, iii, ii, v, vi

b. i, iv, ii, iii, vi, v d. i, iv, ii, iii, v, vi

59. Auditors must not only decide whether to accept new clients; they also
should periodically review their list of current clients and remove those
clients the firm no longer wants to be associated with. Reasons for
discontinuing clients might include the following, except:
a. Difficulty in working with client personnel.
8
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
b. Inability to negotiate an acceptable increase in the audit fee.
c. Evidence indicating a client’s management has integrity.
d. Client need for specialized services the current firm is unable or
unwilling to provide.

60. The following relates to the theoretical framework of auditing. Which

is incorrect?
a. Audit function operates on the assumption that all financial data are
reliable.
b. There should be no long-term conflict between the auditor and the
client management
c. Effective accounting and internal control systems reduces the
possibility of errors and fraud affecting the financial statements
d. What was held true in the past will continue to hold true in the
future in the absence of known conditions to the contrary

61. The following relates to the reasons why independent financial

statement audit is performed. Which is incorrect?
a. Conflict of interest between the responsible party and the intended
users of the financial statements
b. Complexity of decision-making requires expertise
c. Users cannot assess directly the quality of information
d. Misleading financial information could have substantial consequences
for a decision maker.

62. The following statements relate to the Philippine Accountancy Act.

Which statement is incorrect?
a. The president of the Philippines has the authority to remove any
member of the Board of Accountancy for negligence, incompetence, or
any other just cause.
b. The Board shall elect a vice-chairman from among its members for a
period of one year.
c. No person who has served two successive complete terms shall be
eligible for reappointment.
d. After two years, subject to certain conditions, the Board may order
the reinstatement of a CPA whose certificate of registration has been
revoked.

63. An expectation of the public is that
the primary users of audit services
corporation are:
a. The employees and management
b. The Securities & Exchange Commission
the auditor will recognize that
conducted to partnerships and
c. The investors and creditors
d. The Board of Dirctors

64. Which of the following statements is incorrect?

a. In a direct reporting engagement, the practitioner’s conclusion is
worded directly in terms of the subject matter and criteria.
b. In a direct reporting engagement, the practitioner’s conclusion is
worded in terms of the responsible party’s assertion.
c. In an assertion-based engagement, the practitioner’s conclusion is
worded directly in terms of the subject matter and criteria.
d. In an assertion-based engagement, the practitioner’s conclusion is
worded in terms of the responsible party’s assertion.

65. Which of the following is to be applied in the examination of

prospective financial information?
a. PSA c. PSAE
b. PSRE d. PSRS

66. Which of the following factors most likely would cause a CPA not to
accept a new audit engagement?
a. The prospective client has already completed its physical inventory
count.
b. The CPA lacks an understanding of the prospective client’s operation
and industry.
9
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
c. The CPA is unable to review the predecessor auditor’s working papers.
d. The prospective client is unwilling to make all financial records
available to the CPA.

67. When an auditor believes that an understanding with the client has not
been established, he or she should ordinarily
a. Perform the audit with increased professional skepticism.
b. Decline to accept or perform the audit.
c. Assess control risk at the maximum level and perform a primarily
substantive audit.
d. Modify the scope of the audit to reflect an increased risk of material
misstatement due to fraud.

68. The following are valid reasons why an auditor sends to his client an
engagement letter.
A B C D
Avoid misunderstanding with respect to Yes Yes No Yes
engagement
Confirms the auditor’s of the appointment Yes Yes Yes No
Objective and scope of the audit Yes Yes Yes Yes
Assures CPA’s compliance to PSAs Yes No No Yes

69. If the auditor is not able to agree to a change of the engagement and
is not permitted to continue the original engagement, he should
a. disclaim his opinion due to a significant scope limitation.
b. sue the client.
c. consider whether there is any obligation to report to the board of
directors or shareholders the circumstances necessitating withdrawal.
d. none of these is appropriate.

70. The word “auditing” comes from the latin word “audire”, which means
a. To see c. To strain
b. To detect d. To hear

71. What is the responsibility of a successor auditor with respect to

communicating with the predecessor auditor in connection with a
prospective new audit client?
a. the successor auditor has no responsibility to contact the predecessor
auditor
b. the successor auditor should obtain permission from the prospective
client to contact the predecessor auditor
c. the successor auditor should contact the predecessor auditor
regardless of whether the prospective client authorizes contact
d. the successor auditor need not contact the predecessor auditor if the
successor is aware of all available relevant facts

72. Engagement letters are widely used in practice for professional

engagements of all types. The primary purpose of the engagement letter
is to:
a. remind management that the primary responsibility for the financial
statements rests with the management.
b. satisfy the requirements of the CPA’s liability policy.
c. provide a starting point for the auditor’s preparation of the
preliminary audit program.
d. provide a written record of the agreement with the client as to the
services to be rendered.

73. In a financial statement audit, management is responsible for:

a. Making all financial records and information available to the auditor
b. Proposing adjusting journal entries based on the audit results
c. Providing staff to assist the auditor on the engagement
d. Reporting to the audit committee

74. A process comprising an ongoing consideration and evaluation of the

firm’s system of quality control, including a periodic inspection of a
10
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard
selection of completed engagements, designed to enable the firm to obtain
reasonable assurance that its system of quality control is operating
effectively.
a. Auditing is a systematic process
b. Auditing objectively obtains and evaluate assertions
c. Auditors ascertain the degree of correspondence between assertions and
established criteria
d. Auditors communicate the audit results to various interested users

75. In pursuing its quality control objectives with respect to assigning

personnel to engagements, a public accounting firm may use policies and
procedures such as
a. Rotating employees from assignment to assignment on a random basis to
aid in the staff training effort.
b. Requiring timely identification of the staffing requirements of
specific engagements so that enough qualified personnel can be made
available.
c. Allowing staff to select the assignments of their choice to promote
better client relationships.
d. Assigning a number of employees to each engagement in excess of the
number required so as not to overburden the staff and interfere with
the quality of the audit work performed.

76. For initial engagements, the auditor should obtain sufficient

appropriate audit evidence for the following except
a. that the opening balances do not contain misstatement that materially
affect the current period’s financial statements.
b. That the client has informed the predecessor auditor of his
appointment as the new auditor.
c. That the prior period’s closing balances have been correctly brought
forward to the current period, or, when appropriate, have been
restated.
d. That appropriate accounting policies are consistently applied or
changes in accounting policies have been properly accounted for or
adequately disclosed.

77. Which of the following will not necessarily lead the client to request
for the auditor to change the engagement to one which provides a lower
level of assurance?
a. Restrictions on the scope of the engagement, whether imposed by
management or caused by circumstances.
b. Misunderstanding as to the nature of an audit or related service
originally requested.
c. Recent changes in senior management, board of directors or ownership.
d. Change in circumstances affecting the need for the service.

78. When the auditor issues an erroneous opinion as the result of an

underlying failure to comply with the requirements of generally accepted
auditing standards, it results in
a. Business failure c. Audit risk
b. Audit failure d. All of the above

79. The sufficiency and competency of evidential matter is determined by

a. Philippine Standards on Auditing c. Judgment of the auditor
b. Availability of corroborating data d. Relevance of evidence

80. What is the objective of monitoring as an element of quality control

policies of a firm?
a. To evaluate prospective clients and for their approvals as clients.
b. To ensure that personnel are sufficiently directed, supervised and
their work being reviewed adequately.
c. To have reasonable assurance that right personnel is assigned to an
audit engagement.
d. To provide reasonable assurance that the firm’s other quality control
policies and procedures are effectively operating.
11
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB
 Northern CPAR: Auditing Theory – First Preboard

- - - End of Examination - - -

This pre-board is an evidence of your commitment to pass the CPA licensure

examination.

12
NCPAR…driven for real excellence!
AT – 6th Batch – 1st PB